Stung by Scandal, S. Korea Weighs Costs of Curbing Nuclear Power

FILE - An employee of the Korea Power Exchange, a state company to check the country's flow of electricity, watches a huge screen monitoring power supply during power outages in Seoul, September 15, 2011.

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SEOUL— It started with a few bogus safety certificates for cables shutting a handful of South Korean nuclear reactors. Now, the scandal has snowballed, with 100 people indicted and Seoul under pressure to rethink its reliance on nuclear power.

A shift away from nuclear, which generates a third of South Korea's electricity, could cost tens of billions of dollars a year by boosting imports of liquefied natural gas, oil or coal.

Although helping calm safety concerns, it would also push the government into a politically sensitive debate over whether state utilities could pass on sharply higher power bills to households and companies.

Gas, which makes up half of South Korea's energy bill while accounting for only a fifth of its power, would likely be the main substitute for nuclear, as it is considered cleaner than coal and plants can be built more easily near cities.

“If the proportion of nuclear power is cut, other fuel-based power generation has to be raised. If we use LNG, the cost will definitely go up,” said Hwang Woo-hyun, vice president of state-run utility Korea Electric Power Corp (KEPCO).

KEPCO owns Korea Hydro and Nuclear Power Co Ltd, which operates the county's nuclear reactors, and also has a quarter stake in Korea Gas Corp (KOGAS), the world's largest corporate buyer of LNG.

The extra cost to Asia's fourth-largest economy of importing more LNG to replace nuclear could be approaching $20 billion per year by 2035, according to Reuters calculations based on government projections for power capacity growth and South Korea's average LNG prices for last year.

South Korea could need as much as 25 million extra tons by 2035 if a proposal to reduce nuclear's share of its energy mix is drafted into power policy.

The cost projection could be conservative if rising demand from South Korea fuels further price rises in LNG. Top LNG importer Japan is also buying more gas than ever as it compensates for its own nuclear shutdown in the wake of the Fukushima disaster.

Offline, Reduction Recommended

Three of South Korea's 23 reactors are offline due to the fake safety certificates, while another will be shut on Oct. 30 to examine welding quality related to the safety of a steam generator.

Two others are also out for regular maintenance and a sixth one is shut, awaiting an extension of its 30-year life span. Of six reactors under construction, three have been delayed from start-up, also because of safety issues.

Authorities have indicted 100 people, including a former top state utility official, for corruption after the discovery of the fake safety certificates.

The chaos in the industry comes as a government working group recommended on Oct. 13 a cut in South Korea's reliance on nuclear power, pointing to a drop in public confidence in safety that has been exacerbated by Japan's Fukushima disaster.

The study recommended nuclear power capacity be kept between 22 and 29 percent of the total by 2035, well below existing plans to grow the sector to 41 percent in less than 20 years.

The government will hold public hearings to decide whether to back the recommendation before finalizing its energy policy in December.

As of 2012, nuclear accounted for 26 percent of total generating capacity, according to energy ministry data, though it typically accounts for about a third of power generation, while only making up about 3-4 percent of energy costs.

Coal made up about 31 percent and LNG 26 percent of the country's total power generation capacity last year.

Fuel costs for power at the end of August, were 48 won ($0.05) per kilowatt-hour (kwh) for nuclear, 64 won/kwh for coal, 166 won/kwh for LNG and 226 won/kwh for oil, according to KEPCO.

Cost Dilemma

Gas demand by South Korea has already been rising to make up for its nuclear power shortfall.

South Korea's LNG imports rose 12 percent from a year ago to 29.5 million tons in the first nine months of this year. Last year it imported 36.3 million tons of LNG.

Shares of KOGAS hit their highest in more than five months at 66,700 won on Oct. 16, reflecting expectations of higher gas demand if the recommendation for less nuclear power is taken up.

Plugging the nuclear shortfall with imports of fossil fuels could raise local electricity fares up to five-fold by 2030, according to local media.

The energy ministry has ruled out large electricity tariff hikes, however, saying low-cost nuclear generation will continue to contribute a large portion of total power supply even with a drop in its share of the capacity mix.

South Korea's utilities, meanwhile, are banking on consumers using less electricity if prices rise and on what they hope will be cheaper North American gas supplies later this decade.

A KEPCO official who asked not to be identified said the firm expected to receive cheap shale gas from 2017.

Before then, however, fuel costs could rise if nuclear power is replaced with higher cost fuels like gas, he said.

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